Pemex finances constitute a great challenge for AMLO’s administration

Pemex finances

Pemex is undergoing significant financial issues, at least in the short term, according to Mexico’s Secretary of Finance Carlos Urzúa. The management of this state-owned company is one of the challenges that the administration of President Andrés Manuel Lopez Obrador must face. This is something that experts and, to a lesser extent, the Mexican government agree on.

“Carlos Urzúa assured they are seeking measures”

Even so, Urzúa believes there is room for optimism. According to the politician, the energy company has a promising future. His perspective is encouraged by the existence of new and relatively large oil fields. He assures that this oil is relatively easy to extract and there are possibilities to undertake several projects in the medium term.

Pemex finances face bigger problems

Nonetheless, there are huge issues to face in the near future. Pemex is probably the world’s most indebted oil company, with a debt load of $105.8 billion. It is facing large payments over the next three years. At the same time, its production is at decade lows. In this scenario, it is a challenge to find a way to improve the company’s finances.

In order to stabilize Pemex finances, the government has identified several options, such as appealing to the market. However, Urzúa points out that the results would be uncertain. Another way out involves a government capital injection.

This second option is where the administration sees the most opportunities to solve, at least partially, the company’s financing needs.

Urzúa admitted that the government is concerned that the expectations on Pemex’s debt could contaminate the sovereign credit rating. On the other hand, he said that, at the moment, there are no plans to go public.

Concerning figures

Pemex reported a net loss of 148.6 billion pesos (€6.8 billion) in 2018; down by 58 percent from the previous year, according to the report sent to the Mexican Stock Exchange. Of this amount, 125.5 billion pesos (€5.7 billion) corresponded to the first quarter of the year.

Overall, this net loss comes as the result of greater tax burden. Other contributing factors were the operations in the different businesses handled by its subsidiaries. Furthermore, it comes despite the 20 percent rise in its net profits last year, thanks largely to a more beneficial exchange rate.

Strengthening Program

Recently, the Federal Government launched the Pemex Strengthening Program. This initiative begins a financial consolidation cycle that “will allow for financial improvement, ending corruption, and, above all, increasing investment without subscribing debt,” according to CEO Octavio Romero Oropeza.

The executive stated that, as part of this group of measures, Pemex will have additional income of 107 billion pesos (€4.9 billion), thus injecting capital for 25 billion pesos (€1.1 billion), which will result in a gradual reduction of the company’s tax burden for a cumulative amount of 15 billion pesos (€690 million) per year, which will reach 90 billion pesos (€4.1 billion) by the end of the six-year presidential term.

Romero Oropeza assured that the support provided to Petroleos Mexicanos is given within a framework of fiscal responsibility, and he stated that, as part of these actions, investments will be redirected to areas where oil can be easily extracted.

Meanwhile, Pemex CFO, Alberto Velázquez García, reported that this fiscal incentive will help the company to increase its 2018 investment of 204 billion pesos (€9.3 billion) to 288 billion pesos (€12.8 billion) in 2019, almost 36 percent more in real terms.

For more information, check Energía16

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